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S.K. Kim

S.K. Kim

Senior Associate, MSCI Research

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Regulatory Risk Rises for South Korean Employers

  • We identified 61 companies that could feel the greatest impact of South Korea’s new workplace-safety law, which in part broadens the definition of an employee. All are heavily reliant on contractors or subcontractors.
  • Among these 61, those with the highest risk also had the worst health and safety track records. Firms in the machinery (62%) and metals and mining industries (47%) recorded the highest percentage of subcontractor accidents.
  • We also found little evidence of policies and practices aimed at managing and mitigating these risks, suggesting that many of these companies are ill-prepared to achieve full compliance in a timely manner.

The tragic death of a 24-year-old temporary worker at a South Korean power plant in December 2019 led to mass protests and the adoption of a landmark industrial-safety law. A year later, that legislation — also known as the Kim Yong Kyun Law — was expanded to include contract workers and subcontractors.1 We found the majority of companies most likely to be impacted by the new law were not well prepared to address its requirements.2

That inability to mitigate legal risks could mean significant financial liabilities for the companies that fall under the regulation, including fines of up to USD 5 million and penalties up to five times the incurred cost, per incident. Also, the new law can hold senior management personally accountable for incidents involving an employee injury, punishable by up to seven years in prison. Further, the revised law not only provides penalties for lapses, but mandates that companies implement both preventive measures and incident-response plans.


Which Companies Are Most at Risk?

We identified 61 companies that were highly exposed to the new safety regulation, based on their percentage of assets located in South Korea, as well as their workplace-safety records (especially for those that employ contractors) as a proxy to measure the extent of potential compliance risks.3 Those with the greatest potential health and safety regulatory risk are listed in the exhibit below.


Percentage of Assets in South Korea vs. MSCI Health and Safety Key-Issue Risks

The y-axis indicates companies’ potential exposure to health and safety risks based on the percentage of assets located in countries with high rates of industrial fatalities and on business segments prone to workplace-safety risks. Source: MSCI ESG Research, company disclosures, as of April 12, 2021.

Thirty-three of these companies already operate in traditionally dangerous industries such as machinery, shipbuilding or construction, where worker injuries and fatality rates are especially high. A combination of high employee safety risks — both geographical and operational — and the potential media attention such incidents may attract leave these companies more vulnerable to the enhanced workplace-safety regulation. Each may choose to invest more heavily in workplace-safety measures, both to avoid compliance risks and the potential loss of senior leadership.


Assessing Workplace-Safety Risks

We reviewed the workplace-safety-related controversies for the companies in this study’s universe and examined various metrics covered by our health and safety key issue: the scope of their workplace-safety policies, executive oversight of their operational-safety risks and executive-compensation targets linked to workplace-safety performance and improvements. The exhibit below compared these companies’ compliance risks, as measured by their records of workplace accidents, against their overall health and safety management practices, including the level and extent of a company‘s commitment or policies and the implementation of workplace-safety programs.


Strong Health- and Safety-Management Measures May Not Mean a Company Is Better Prepared

Size of the bubble represents the absolute number of contractor health and safety accidents based on our controversies research; workplace-safety risk-management capacity is based on our health and safety risk-management capacity, which is our scoring of management quality, based on the existence and extent of policies, performance targets, executive pay linked to workplace-safety targets, actual performance over time and instances of past or continuing problems. Source: MSCI ESG Research, company disclosure, as of April 28, 2021.

Based on the four metrics in our health and safety key issue, only one company, SK Innovation Co. (oil, gas and consumable fuels), stands out as being well-prepared to adhere to the new regulation’s broader employee protections and employer responsibilities, as it has already adopted board-level oversight of implementing operational-safety policies and measures as well as a safety policy that covers contractors.

But the companies presenting the biggest concerns to investors are likely those with a combination of relatively lax workplace-safety measures and ongoing related controversies, in industries that are already highly susceptible to worker safety risks. For example, five companies in the shipbuilding, construction and metals and mining industries4 — Korea Shipbuilding & Offshore Engineering Co. Ltd. (KSOE), Daewoo Shipbuilding & Marine Engineering Co. Ltd., POSCO, Hyundai Steel Co. Ltd. and Samsung Heavy Industries Co. Ltd. — operate in high-risk industries with a demonstrated lack of safety-mitigation efforts and had more than one contractor safety controversy.


What’s Next?

The new safety reforms have raised the bar considerably on efforts to tackle repetitive workplace accidents in South Korea, requiring companies to implement at least a minimum level of protection for workers, whether they are directly employed or contract workers. It remains to be seen how the new law may affect behavior at these companies, especially those most highly susceptible to the regulation’s bite. Irrespective of their response, investors would do well to be forewarned, to identify those companies applying inclusive safety policies and solid implementation plans — as well as those that are not.



1“Newly Enacted Serious Accidents Punishment Act, Amended OSHA and MOEL’s Audit Plan for 2021 Increase Responsibility to Prevent Workplace Accidents.” Kim & Chang, March 25, 2021.

2Out of 426 constituents in the MSCI Korea Investable Marked Index, 61 companies had health and safety as a weighted key issue (as of Feb. 25, 2021), based on the MSCI ESG Ratings methodology. Unless otherwise noted, this report is based on our assessment of the health and safety key issue for these 61 companies, as of that date.

3Pan Ocean Co. Ltd., Doosan Infracore Co. Ltd., Doosan Bobcat, HMM Co. Ltd. and Korea Line Corp. did not separately report the percentage of their assets in South Korea, but our research finds those companies also have at least some assets located in South Korea based on disclosures in their annual reports for fiscal year 2019.

4Industries are drawn from the Global Industry Classification Standard (GICS®), which was jointly developed by MSCI and S&P Global Intelligence.



Further Reading

Are APAC’s High-ESG-Risk Stocks Cleaning Up Their Act?

Corporate ESG Disclosure: A Health & Safety Case Study